Products & Services

A Real Community Bank is proud to introduce a now fully customizable advertising campaign that is sure to make an impact in your community.

These art and native design files are available to CBAI members for use at your bank. All imagery, colors, copy, and materials can be customized to meet your specific marketing needs.

If you have any question or need help customizing your ads, please contact Andrea Cusick, Senior Vice President of Communications, Jenny Dial, CBAI Senior Vice President of Operations at 217-529-2265 or Brian Blas, Powell Creative, LLC, at 615-385-7736 ext. 14.

Three – Periodically send an ARCB article to your local newspaper for publication.

Four – Occasionally air the public service announcements on "Volunteerism", either on television advertising or on lobby monitors, or both.

Five – Acquire the rights to professionally-produced ARCB radio, television, and print advertisements and include them in your regular advertising program. Six – *Use the ARCB Identity on bank apparel and other promotional items.

*Available only through our Real Community Bank partners, MIII 1-800-790-8718 or HSC 1-800-879-7151.

On behalf of the Community Bankers Association of Illinois ("CBAI"), I am submitting this comment letter in response to a Notice of Proposed Rulemaking ("NPRM") published by the Office of the Comptroller of the Currency ("OCC"). CBAI is a professional, not-for-profit trade association representing the interests of more than 510 Illinois financial institutions. CBAI's members include commercial banks, savings and loan associations and savings banks that can be either federally-chartered or chartered by the State of Illinois. Members of CBAI can be found in each of Illinois' 102 counties. While CBAI provides numerous benefits and services for its members, CBAI's primary role is that of an advocate for the interests of community banking in Illinois. It is in this role that CBAI submits this comment letter.

First, it is the position of CBAI that the new regulation is unnecessary and could place regulatory burdens on national banks that are not faced by their state-chartered competitors. CBAI is not aware of any history of abuse in the offering or sale of DCCs or DSAs that justifies regulatory intervention at this time. Furthermore, the Illinois Office of Banks and Real Estate has opined that DCCs are "incidental to an Illinois bank's statutory authority to loan money and carry on a general banking business" [quoting from that agency's Interpretive Letter No. 94-11, issued June 15, 1994]. State-chartered banks in Illinois will presumably be able to continue offering DCCs without being subject to the regulatory requirements proposed in 12 CFR 37.

Notwithstanding these threshold concerns about the propriety of the new OCC regulation, the NPRM states that the OCC has decided "that some additional regulations in this area would be beneficial." Therefore, the balance of this comment letter will set forth CBAI's suggestions or concerns regarding proposed language in Sections 37.3, 37.4, 37.5 and 37.6.

Section 37.3 Prohibited practices

Section 37.3 (b) prohibits the use by a bank of "any practice that could mislead a reasonable person with respect to the information that must be disclosed under Sec. 37.6 (a) of this part" (emphasis added). CBAI's concern is that the "could mislead" standard is so vague and subjective as to expose a national bank to a violation and/or liability for a statement or action that was not intended to be deceptive. Although some degree of subjectivity may be inevitable, CBAI suggests that the relevant language in Section 37.3 (b) should prohibit practices "designed to mislead," or practices that have a "substantial likelihood of misleading" a reasonable person. Such standards would protect the national bank in the event of an innocent misunderstanding on the part of the "reasonable person" to whom the information was communicated.

Section 37.3 (d) provides that a national bank has no unilateral right to modify a DCC or DSA. CBAI suggests that this subsection be amended to clarify that the national bank may not unilaterally modify the contract "in a manner detrimental to the interests of the customer." This would be consistent with the regulation's goal of protecting the customer, but it would allow technical, nonsubstantive changes that may be necessary or appropriate without requiring the national bank to obtain the customer's concurrence.

Section 37.4 Affirmative election required

As proposed, Section 37.4 states that the customer's agreement to purchase a DCC or DSA must be "in writing in a document that is separate from the documents pertaining to the credit transaction" (emphasis added). CBAI believes that the DCC or DSA could also be construed as a document "pertaining to the credit transaction," and therefore the customer's written election to purchase such a contract would similarly pertain to the credit transaction. To clarify the ambiguity regarding certain of these documents being "separate from" others, and also to clarify the authority for these "separate" documents to be executed conveniently at the same opportunity, CBAI recommends that the second sentence in proposed Section 37.4 be restated in a manner similar to: "The customer's election must be in writing in a document that is separate from other documents pertaining to the credit transaction, although the document may be executed at the same time and place as other documents pertaining to the credit transaction."

Section 37.5 Refunds of fees in the event of termination of the agreement or prepayment of the covered loan

Section 37.5 requires national banks that offer DCCs or DSAs to offer those contracts with a refund feature. The refund would be in the amount of "any unearned portion of the fee paid for the product" at the time that the contract is terminated (including by prepayment of the loan). Although there is a rational argument in support of mandating a refund on behalf of customers who terminate the contracts, there are also arguments against the mandated refund option. First, if the bank clearly discloses that the DCC or DSA fee to be assessed is non-refundable and the customer elects to purchase the contract with that understanding, there is no deception or abusive practice on the bank's part. Second, DCCs and DSAs are not insurance policies and thus are not subject to any premium refund requirements that might apply to early termination of insurance policies. Finally, banks that offer DCCs and DSAs may use the fee income to build reserves necessary to offset the safety and soundness risk associated with cancellation of an obligor's payment responsibilities. National banks would be better able to calculate and fund such safety and soundness reserves if they did not have to factor in the loss of a portion of the fees that would result from refunds. For these reasons, CBAI requests that the OCC reconsider the provisions in Section 37.5 [and the related language in Section 37.6 (a) (6)] mandating that a national bank that offers DCCs or DSAs must include a refund option.

Section 37.6 Disclosures

In Section 37.6 (a) (5), the phrase "activation of the debt cancellation contract..." is used, but "activation" is undefined. We assume from the context that "activation" refers to the assertion by the customer of his or her right to cancel the debt or suspend payments on the debt, rather than the binding execution of the contract at the time of its purchase. If there is any ambiguity, however, the OCC should consider defining when the contract is "activated" for purposes of Section 37.6 (a) (5).

Thank you for this opportunity to comment on the NPRM concerning proposed 12 CFR 37. If you have any questions or if I can provide you with any additional information, please feel free to contact me.

On behalf of the Community Bankers Association of Illinois ("CBAI"), I am submitting this comment letter concerning the Office of Banks and Real Estate's ("OBRE's") proposed rule titled "High Risk Home Loans."

First, CBAI renews the issue that we raised in response to the emergency rules regarding whether the Illinois Banking Act empowers OBRE to promulgate a rule such as this. Section 48(6) authorizes OBRE to promulgate rules relating to "administering the provisions of this Act." We have neither seen nor heard anything that persuades us that the Illinois Banking Act contains provisions specifying under what terms, conditions, underwriting standards, etc. a mortgage lender must or should do business. If such provisions are to be found in the Illinois Banking Act and we have merely overlooked them, please direct us to those provisions and we will reconsider our objection on this point. If such provisions are absent from the Illinois Banking Act, then it is difficult to accept that these rules are authorized by Section 48(6). This is consistent with CBAI's position all along that predatory lending should be addressed by Illinois lawmakers and regulators through reasonably targeted legislation that receives thorough consideration, rather than trying to address this significant societal ill with tools (i.e., current statutes and rulemaking authority) that have not contemplated and were not designed to address this problem.

Comments on the text of the proposed rule follow in section-by-section format.

Section 345.10 Definitions

The definition of "high risk home loan" illustrates the vulnerability of a rule that is not grounded in statutory guidance or direction. OBRE has created a definition of a term never before contemplated under the Illinois Banking Act, and has used administrative discretion to impose definitive numbers (i.e., APR percentage points) that will affect the manner in which and extent to which a mortgage lender/servicer will be regulated in Illinois.

The definition of "servicer," being limited to "any entity chartered under the Act," makes clear that state-chartered banks will be treated differently than their counterparts and competitors that were not chartered under the relevant State law. Furthermore, that definition refers to entities that collect or remit payments "on a residential mortgage loan in accordance with the terms of the residential mortgage loan." If this rule is aimed at regulating "high cost home loans," should the term "high cost home loan" be used in the definition of "servicer" rather than the much broader term of "residential mortgage loan?"

In the definitions of "points and fees" and "total loan amount," are the citations (i.e., 12 CFR 226.5 and 12 CFR 26.32, respectively) correct? Also, in paragraph (c) of the definition of "points and fees," there is a reference to "paragraph (1) of this subsection." I do not see a paragraph (1) to which that reference would apply.

CBAI will not argue with the premise that sound underwriting practices would include the lender ascertaining, in the lender's judgment, the ability of the borrower to service the debt. However, making that self-serving and self-evident business practice a part of a statute or regulation could invite lender liability litigation down the road. A debtor's attorney may argue, in virtually any case where the borrower has defaulted, that the very fact of default is some evidence that the debtor was not able to service the debt over the term of the loan at the time of origination. We are not suggesting that the proposed rule was intended to incite lender liability litigation, but it is a foreseeable consequence when a desperate and disgruntled borrower goes into default and seeks a legal way to avoid his or her obligation or to place blame on the lender for "irresponsibly" loaning him or her funds that eventually ruined a business, a credit report, etc.

Section 345.45 Prepayment Penalties

The first line of this section refers to a "subject loan." Is this a reference to a "high risk home loan?" It also refers to "a prepayment penalty made (i) after the expiration of the 36 month period...." Should that reference be to the making of a prepayment penalty, or to the making of a prepayment?

Sections 345.50 through 345.100

Again, each of these sections impose new, substantive restrictions on lenders when the Illinois Banking Act does not address underwriting standards or financing/refinancing terms and conditions. These are additional illustrations of where this proposed administrative rule would be legislating standards and limits that were never approved by, or delegated to OBRE from, the General Assembly.

Of particular interest is Section 345.80 ("Payments to Contractors"). This section takes the undelegated regulatory discretion to a new level, restricting the transactions not just between a lender and its borrower but now also between a lender and a home improvement contractor. Furthermore, Section 345.80 is not limited to transactions involving "high cost home loans."

In subsection (c), is it sufficient that the borrower must only demonstrate that he or she is "seeking" credit counseling in order to warrant forbearance. CBAI would prefer something more verifiable, such as the fact that the borrower is "undergoing" or "attending" credit counseling sessions. Again, at the end of subsection (c), is "subject loan" the same as "high risk home loan?"

In subsection (a), the term "conventional loan" is undefined. Subsection (b) asks for some data that might not be readily available to the lender and may add cost and administrative burden to the lending and reporting process. Also, do state banks have comfort that disclosure of these borrowers' names and loan data will not create a violation of the state or federal customer privacy statutes and regulations?

The focal point of this section is OBRE's ability to sanction a lender that has a higher-than-average foreclosure and default rate when compared to other lenders in a given "area." Two defects with this proposition are that: (1) it is essential for purposes of due process to know what a given "area" is; and (2) the average of defaults and foreclosures in a given "area" will be impacted by the lack of data from similarly situated national banks and federal savings associations.

Due process would require that a bank be put on adequate notice as to the rules and standards that will be applied to it before it becomes eligible for sanctions. No bank can feel secure that it has adequate notice or direction as to its "permissible" rate of foreclosures or defaults if it is going to be compared to other lenders in an undefined "area." Does this mean that a bank is going to be compared to the averages in its county? Will it be compared to averages in a SMSA? Will it be compared to averages in some other geographic or commercial grouping of institutions known only to OBRE "on a case-by-case basis" as suggested by the proposed rule?

Also, national banks and federal thrifts will not have to supply the foreclosure and default data. What happens when a state bank's rate slightly exceeds the "average" reported by state banks in OBRE's undefined "area," but the state bank wants to argue that federally-chartered institutions in that "area" had disproportionately high foreclosure and default rates that would have (if duly taken into consideration) caused the state bank's rate to fall "below average?" Would this be an affirmative defense against OBRE's sanctions? How would or could the state bank make its case on this point, given the fact that OBRE cannot compel the federally-chartered institutions to provide the data that might "exonerate" the state bank in question?

Under subsection (a)(1) of this rule and Section 48(3)(a) of the Illinois Banking Act, would the expense of OBRE's examination under these circumstances be borne by the state bank?

In subsection (a), CBAI suggests that the regulatory consequences of the above-average rate of foreclosures and defaults should be subject to a lack of an apparent explanation that is unrelated to abusive lending practices. For example, a bank may encounter a high number of foreclosures and defaults in a given period of time due to a plant closing that causes a number of local borrowers to experience loss of income. If the default and foreclosure rates were tied to a cause that was beyond the bank's control, the bank should be able to assert such cause as a valid basis for avoiding the regulatory requirements envisioned by this proposed rule.

In subsection (3)(C), does OBRE really mean that all prospective borrowers would have loan applications submitted to OBRE for third party review? Would this include credit card applications, car loan applicants, only high risk home loan candidates, or any borrower who pledges real estate as collateral for any type of borrowing?

Section 345.160 Third Party Review of High Risk Home Loans

Is OBRE exposing itself to any liability through this process? For example, if OBRE "approves" a high risk home loan application scenario and two years later it turns out to be detrimental to the borrower, would OBRE be subject to any liability? If OBRE-approved loan applications result in a higher-than-average rate of foreclosures and defaults when compared to the averages established by a group of banks (on a case-by-case basis), would OBRE be subject to regulatory or industry sanctions? When would OBRE determine that a "high risk home loan," at several percentage points above the applicable Treasury rate or with extremely high points and fees, "makes economic sense to the borrower?"

Once again, CBAI is not a defender or supporter of predatory lending tactics. We suspect that predatory lending is primarily engaged in by certain entities and in certain geographic areas, and that properly focused legislation could go a long way toward addressing this problem. While community bankers are not the source of the predatory lending dilemma, we do have a stake in protecting our ability to make mortgage loans to our customers without facing unnecessary burdens or costs. This includes objecting to regulations that CBAI believes to be unauthorized by the law, overly broad for their intended purpose, lacking in notice or direction to the entities that might be penalized under the regulations, and not conducive to a level playing field given the fact that the regulations would place burdens and threaten sanctions on only certain state-chartered lenders.

Thank you for your consideration of these comments. If you have any questions or seek any additional information, please feel free to contact me.

On behalf of the Community Bankers Association of Illinois ("CBAI"), I am submitting this comment letter in response to a Notice of Proposed Rulemaking ("NPRM") published by the Office of the Comptroller of the Currency ("OCC"). The NPRM addresses a "Lending Limits Pilot Program" affecting the lending limits applicable to national banks in certain states. Specifically, the rulemaking would amend 12 CFR Part 32 to enhance the small business and residential real estate lending authority of national banks headquartered in states where state banks benefit from lending limits that exceed the limit applicable to national banks.

CBAI is a professional, not-for-profit trade association representing the interests of more than 530 Illinois financial institutions. CBAI's members include commercial banks, savings and loan associations and savings banks that can be either federally-chartered or chartered by the State of Illinois. Members of CBAI can be found in each of Illinois' 102 counties. While CBAI provides numerous benefits and services for its members, CBAI's primary role is that of an advocate for the interests of community banking in Illinois. It is in this role that CBAI submits this comment letter.

First, CBAI supports and appreciates the OCC's ongoing efforts to reduce unnecessary regulatory burdens on community banks and to enhance the ability of community banks to compete fairly and effectively in today's banking environment. In CBAI's view, the proposed amendments to 12 CFR Part 32 reflect further support for the competitive interests of community banks.

The NPRM specifically requests comment on whether loans to small businesses should be secured by specific types of collateral in order to qualify for the increased lending authority. CBAI suggests that such a requirement is unnecessary and is perhaps inconsistent with the "parity" objective of the proposed amendments to 12 CFR Part 32. The State of Illinois, for example, has a higher lending limit for state-chartered banks than the current lending limit applicable to national banks. See Section 32 of the Illinois Banking Act (205 ILCS 5/32). There is no systemic or historic problem in Illinois with state-chartered banks making unsecured loans or under-secured loans to small businesses at the maximum loan amounts allowed by Illinois law. There is no requirement or condition stated in the Illinois statute or in any relevant banking regulation issued by the Illinois Office of Banks and Real Estate that mandates specified collateral that a state-chartered bank must obtain to secure a small business loan made at or near the maximum amount allowed by Illinois law. Any amendment to 12 CFR Part 32 that would impose a requirement or condition regarding specific collateral that national banks must obtain to maximize their lending authority with respect to small businesses would not appear to be based on any demonstrable need (i.e., evidence that banks make or will make unsafe and unsound loans to small businesses under the amended regulation) and would place a regulatory burden on national banks that is not imposed on similarly situated state banks.

The OCC proposal requires that a national bank submit an application to the OCC in order to qualify for the use of the enhanced lending authority. The bank's submission must include those components identified in proposed Section 32.3(b)(6)(iv). The OCC may, or may not, approve the national bank's application after determining whether such approval "is consistent with safety and soundness." Although CBAI recognizes that the OCC wishes to maintain broad regulatory discretion, it is not clear that additional considerations would be relevant or helpful in guiding either the bank applicant or the OCC. The regulation would already require that the bank be well capitalized and meet specified regulatory rating thresholds, and that the bank's board of directors would assert adequate oversight of the additional lending authority. CBAI recommends that, after establishing such minimum standards, the OCC should consider accepting notice (containing the same information currently envisioned in the proposed application) of the national bank's intent to take advantage of this authority rather than requiring formal approval by the OCC. A notice procedure would provide the OCC with information regarding which national banks were prepared to take advantage of the new lending authority without imposing a new, formal layer of regulatory approval.

The proposed amendments to 12 CFR Part 32.3 include the addition of the following language as Section 32.3(b)(6)(v):

(v) Provided that a bank remains an "eligible bank," OCC approval of the bank's authority to use the exceptions in paragraphs (b)(6)(i) and (ii) of this section is effective for three years and may be renewed.

The proposal does not, however, address the treatment of an individual loan that was made in good faith when the national bank was eligible for this authority but which subsequently (within the three year period referenced above) falls out of compliance. For example, a national bank that has received OCC approval under this pilot program may make a qualifying small business loan on January 1, 2001, but a subsequent change in the bank's composite Uniform Financial Institutions Rating may cause the bank to no longer qualify as an "eligible bank" on January 1, 2002. The above-quoted language indicates a clear intent that, upon no longer qualifying as an "eligible bank," the national bank could not rely prospectively on its prior OCC approval to continue making loans under this pilot program. However, it is not clear from the NPRM how the individual loan already on the books in excess of the bank's "standard" lending limit would be treated by examiners. It is not clear, in the example cited above, that the OCC's current regulation on "non-conforming loans" (12 CFR 32.6) would be applicable. CBAI requests clarification that a national bank which makes a loan in compliance with the pilot program will not be found in violation of the National Bank Act or 12 CFR Part 32 if the bank subsequently becomes disqualified as an "eligible bank."

Finally, CBAI supports the OCC's proposed amendment to Section 32.3(c)(5) that would permit opinions from State Attorneys General or other appropriate State legal officers to form the basis of a conclusion that an instrument qualifies as a "general obligation" of a public entity.

Thank you for this opportunity to comment on the proposed amendments to 12 CFR Part 32. If you have any questions or if I can provide you with any additional information, please feel free to contact me.

Sincerely,

Jerry D. Cavanaugh General Counsel Community Bankers Association of Illinois